The economy needs no conductor

We spend too much time waiting for orders — and money — from Washington.

The collapse of the housing bubble gave politicians a license to do what they wanted to do all along: spend. The usual checks on extravagance, weak as they are, were washed away. Budgets? We’ll worry about that later. Inflation? We’ll worry about that later.

As I point out in my brand new book, “No, They Can’t: Why Government Fails — and Individuals Succeed,” a true free market doesn’t require much. It’s not like an orchestra in need of a conductor. What it needs is property rights, so no one can take your stuff. Then people trade property to their mutual advantage. Resources move around without the need for a central, coercive government telling people which resources should go where — or telling them that they must get permission to do what they think is advantageous.

Given time, an economy, unless crippled by further government intervention, will regenerate itself. But during the recession, Keynesians in the administration said government had to “jump-start” the economy because businesses weren’t hiring. An economy, however, is not a machine that needs jump-starting. It is people who have objectives they want to achieve.

If the economy continues to recover, President Obama will claim he caused that. It wouldn’t be the first time a “leader” ran in front of a crowd and claimed to have led the way. But politicians don’t deserve credit for what free people do.

Despite politicians’ talk of “giving” money to this or that (remember those tax rebate checks with President George W. Bush’s name emblazoned on them?), government has no money of its own. It has to take it from the private sector. Grabbing those scarce resources stifles the real economy.

One of the most important questions in politics should be: “Would the private sector have done better things with that money?”

A healthy economy does not just create jobs of any kind, it creates productive jobs. The pharaohs of ancient Egypt created plenty of jobs building pyramids, but who knows how much better the lives of ancient Egyptians (especially the slaves) might have been had they been free to engage in other work? They would all have had better housing, more food or snazzier headdresses. Even as smart a person as economist John Maynard Keynes seemed to forget about that when he wrote in his “General Theory” back in 1936, “Pyramid-building, earthquakes, even wars may serve to increase wealth.”

By that logic, government could create full employment tomorrow by outlawing machines. Think of all the work there’d be to do then!

Think about the two other methods to “increase wealth” that Keynes lumped in with pyramid-building: earthquakes and war. Now, sure, after a war or earthquake, there’s plenty of construction to be done. After the Haitian earthquake, Nancy Pelosi actually said, “I think that this can be an opportunity for a real boom economy in Haiti.” New York Times columnist Paul Krugman made a similar error. On CNN, he said if “space aliens were planning to attack and we needed a massive buildup to counter the space alien threat … this slump would be over in 18 months.” Before that, he said the 9/11 attacks would be good for the economy.

This is Keynesian cluelessness at its worst.

Isn’t it obvious that without a catastrophe those same workers and resources could have done productive work — with the overall standard of living higher as a result? There is something wrong with mainstream politics and economics when some of its most respected practitioners overlook this point.

The economic philosopher Frederic Bastiat called their mistake the “broken window fallacy.” If I break your window, it’s easy to see that I gave work to a glass-maker. But what we don’t see is this: You would have improved your circumstances with the money you paid the glass-maker. He merely restored your previous condition. That money could have created different jobs, perhaps more productive ones. They’re unseen.

People favor government projects because they notice the seen, not the unseen.

Creating jobs is not difficult for government. What is difficult is creating jobs that produce wealth.